Someone asked yesterday: “How do you continue?” Continue reading and writing for some 18 hours a day trying to explain to a small audience my fears for the economic future of most of the people of the planet.

The answer is that for a long time we have been in an undeclared war fought on vague fronts, a war that is so often obscured by events, where most see only glimpses of the fighting and destruction. Like most wars, many people are barely aware of the fighting and don’t even hear the guns pounding.

Principally, the war has been between the people and the banks. Not all the banks, for banks have performed a noble service that has made life for the people far less brutish than we often conceive. But at times banks have attained such power that some come to reign over the people. The revolutionary war fought by the Americans was rooted in part in the overthrow of a banking order imposed on the colonies. That war continues to this day.

For the sake of this essay, I suggest the current stage of fighting started in the US in the final days of the Clinton administration when the financial system, not the banks, gained powers that had been removed following the Great Depression. Then American law makers again had become convinced that too much power was in the hands of a cartel of “trusts”, and those powers were severely curtailed.

The new powers granted (or returned) by Clinton were soon exercised and a financial bubble built on easy credit or debt that had been building for more than a decade soon exploded in a dotcom mania, which, when it burst, threatened the economy.

This in turn led to the creation of a new bubble in housing growing out of the US but that was already ensnaring the world.

The loss of political control led some financial interests to sell houses in the US and beyond to people who had no hope in ever paying for them. But the profits made from the fees were such that those interests engaged in activities that were not just risky. They were dangerous and doomed and would threaten the livelihoods of millions.

By 2006 it was evident to the financial interests, many politicians and some economists, that billions, perhaps trillions, of dollars would be lost in a coming meltdown of US housing as it was clear that vast numbers of people, probably more than 50% of home buyers, were, with the knowledge of those selling the home loans, lying about their income and their assets.

But nothing was done.

The warning grew louder and some financial institutions started to bet against the future of the very loans they were selling by transferring the risk to counterparties, institutions such as American International Group, or by shorting banks engaged in lending and shorting the builders whose shares had exploded during the boom many now knew imperiled the world’s financial system.

But it was not until the dying days of the Bush presidency, when George W Bush no longer had the vaguest interest in his job, that the late great salvoes were exchanged. In late 2008 the world faced what seemed to be a “systemic” collapse of the financial system with banks, securities companies, insurance companies, accounting companies — the entire spectrum of the top end of the financial system —  about to explode. The people of the world, including their political leaders, were told that without massive assistance their way of life, the comfort and well being of all, was threatened as it had not been since that Great Depression.

A process of taxpayers funding the very institutions that had bet the system up, making vast profits then turning their bets into greater profits, was established. From the rubble grew “Zombie” banks, amalgamations or combinations of the bigger banks, which had been swallowed by the financial institution that had sold on the housing loans to others around the world. These “Zombie” banks would need more money if the system were to survive.

Meanwhile, a new President had been elected in the United States on the platform of change of the kind that FDR and Washington law makers had brought about 80 years before. But the change this time amounted to pumping even greater sums of money into the “Zombie” banks, money that came from the pockets of America’s taxpayers.

Meanwhile, unnoticed by most, the property boom had spread the world over and nations, some with little understanding of complex financial arrangements, found they were enjoying the fruits of this boom, which spread to entire sectors of their economies through the accumulation of more and more debt.

With the apparent collapse of the home of the boom in the US, soon those nations were also facing collapse. The richer nations, those that could continue to borrow, engaged in stimulus of their economies or quantitative easing — a nice way of saying printing money.

Normally, such a policy would have led to dramatic inflation but as the value of things such as property was falling, and there was excess capacity, inflation did not appear or appeared only in certain areas such as  food — something that can be disguised in government statistics.

But through 2009 the situation seemed to be easing and improving. As the media took its gauge of wealth from the fortunes of the stock market and as much of the money created went into the stock market it seemed that, as the markets appeared to predict future prosperity, the battle had been won and the world’s economy was stabilising. But the reduced value of assets, particularly housing assets, was never addressed. Financial institutions were allowed to state their value basically according to what they wished their worth to be. The vital task of writing down the losses incurred by the “Zombie” banks was avoided. And those banks were judged Too Big To Fail, meaning that no matter what they did governments would stand behind them. The usual approach of separating good banks from bad or cutting out the bad sectors of banks was not seriously attempted. Instead, as we are seeing in the most alarming example, taxpayers funded the claims and the bad banks, which were often the very biggest banks, were given billions. The most notorious case of this is currently being exposed as the US attempts to determine how the taxpayer managed to pay those banks, through AIG, almost $US200 billion ($A217 billion) to cover loses the banks themselves would normally have to suffer.

But the media desperately wanted to believe these policies were working. Newspapers around the world were collapsing as advertising for property and jobs dried up so the media joined the financial institutions, engaging in a psychological battle to create the confidence we have long been assured is the root of prosperity. But the massive debts accumulated around the world were never seriously addressed. The weaker nations of Europe began to falter and unemployment rose. Even the US, where up to $US15 trillion had been pumped into the financial system, saw jobs dry up until unemployment officially reached 10%, double what it had been only a few years before.

But another media had emerged and taken root as the new century began. The internet, began attracting economists who didn’t think this system was fair or would work.

Those who saw the coming collapse, when the US embarked on creating its property boom, and predicted the collapse of property and attendant misery, were emboldened. Internet sites that took a completely contradictory position to the established media sprang up in such numbers the site that monitored them long gave up counting.

As we enter 2010 the war of words is being fought between these two groups, with the politicians caught in the middle. The internet has galvanised and is placing increasing pressure on the politicians to stand up to the banks and investigate their activities.

But wars are not only fought with words. Nations that have seen their wealth evaporate. Those more explosive ones in southern Europe are witnessing the wars being fought in the street. Fearful of the crowd, politicians from Greece to Iceland are refusing to accept the demands of the world financial order to cut pays, pensions and services to cover the debts incurred by those who never were the recipients of the riches that flowed during the boom days.

This war of the worlds is finding its most apparent expression in a struggle between the two great economies of the world — China and the US.

China faces more than angry citizens burning cars. It has carefully saved trillions of dollars so it will be able to interfere in its internal economy if, as happened just over a decade before, it finds itself exposed to the world’s and particular America’s fluctuations and demands. China’s leaders cannot go before their people and ask them again to accept hardship, given those people in the large part have endured hardship to create prosperity. And China remains one of the poorest nations in the world. Its leaders cannot ask its people to go without at the very time those people believe they should be enjoying the fruits of their efforts. Yet this is what the US and much of the world is demanding of it.

China is desperate to avoid a major confrontation with the US, which it could greatly damage, simply by failing to finance the US deficit. China thinks it is being generous in paying for America’s continued waywardness and its propensity to wage war with money it borrows from the Chinese.

But each day  the confrontation grows. Today it is again human rights, with Google’s access to China in doubt. Again China sees the US position as hypocritical, citing US abuse on the battlefield and its huge prison population as evidence that the US does not practise what it preaches.

But the war of the world is not being fought just between nations but also within nations, which makes for a situation very different from any previous great confrontation.

Within the US more and more are angered by the apparent cosy relationship between the government and the banks that many believe created the financial crisis.

This anger is being expressed though the internet but also in town meetings across the country and with right-wing firebrands screaming invective against whatever the government might attempt to do to improve the nation’s problems through things such as  health-care reform — desperately needed by 50 million Americans. As pressing is the belief that Americans are seeing the remains of their savings tied up in pension funds being hijacked by the government and handed to the big banks.

Hatred of big banks runs deep in the American mind and the nation’s history is in part one of struggle between the banking system and the people. The problem for the US is not so much uprising of the kind that China might face if it tries to reduce its people’s living standards but the realisation that the working and middle classes are already having their living standards destroyed as more and more money is printed — or electronically issued. As unemployment worsens American states can no longer raise money to meet basic budget remands. States are facing bankruptcy.

Meanwhile, the spectre of default in any one of many nations threatens to unleash forces that no one understands. All we know is that defaults have, in the past, led to a spiral of financial collapses and often to war. But printing more money flames the inflationary fires with similar dangers.

And, in the meantime, most nations have done little to address the excessive valuations of their banks through credit write-downs and many usually cautious observers believe a good part of the banking system remains insolvent. We, many think, have not dodged the banking bullet.

Yet the establishment media seems still convinced that the GFC, as the media likes to call the events of the past year, is over. Even that is really a matter of semantics. By labelling some in that fashion we are suggesting subconsciously that the worst has passed. And the GFC was not an isolated event that took place over the last year or so but the inevitable result of years of bubble economics.

Having lived in the US before and through the housing boom it was apparent to me a great crisis was in the offing by the early years of this century. I began writing about it and have spent most of my waking hours these past five years studying these tremendous shifts and pondering the future.

In the past that has been easy, for it was apparent that the housing bubble would burst; it was apparent that it would spread to nations that joined the debt-housing boom and it is apparent that we are still deep in the woods.

The path out is not apparent, though some things are clear.

Quantitative easing has not worked and will be revisited. Trillions more will be directed into the financial system, especially in the US, whose government seems entirely captured by the banks it has allowed to reign over the political framework.

This will strain the political system further and the US faces a dangerous future.

But so do we all. Thus one writes in the hope that these subjects will be considered by the public and the broader media and we replace the triumphal assumptions with ones that reflect the great crisis the world continues to face — or ignore it at our peril as we have in the past.

We will not and have not solved the financial crisis and will not do so through the creation of yet another bubble.